Fraud alleged at school district

Auditor General Julia Mullaley speaks at a news conference Wednesday in St. John’s about her report, “Management of the Procurement of Goods and Services: Newfoundland and Labrador English School District.” - Joe Gibbons

Free tires, snowclearing, $735 wheelbarrow rentals and more found by auditor general’s review of NLESD

Free tires, free snowclearing, $735 wheelbarrow rentals and $3,3200 laser levels are just a few of the allegedly fraudulent purchases that could see more former employees of the Newfoundland and Labrador English School District (NLESD) charged with fraud.

Auditor General Julia Mullaley released a two-and-a-half-year investigation of allegations of fraud within the ranks of the NLESD, and she came up with plenty of examples between 2011 and 2016.

Mullaley says the alleged fraudulent activity came after an investigation of the facilities branch of the NLESD, which employs between 10 and 12 people.

“Concerns were identified with the legitimacy and integrity of the quotation process. We observed many known indicators of unethical behaviour and possible fraud, including expenditures for goods and services that were not properly authorized or reviewed,” said Mullaley.

The Royal Newfoundland Constabulary and Royal Canadian Mounted Police had already been investigating allegations of fraud, though the investigations were halted until Mullaley’s review was finished.

The report has referred a number of matters to police to help in their investigation, though Mullaley couldn’t be specific on how many new cases are with police.

The 62-page report is overflowing with suspicious purchases by the district’s facilities department.

In one example, buyers for the district approved the purchase of 67 tires, costing $14,214, and three tire installations at $220. The makes and models of the tires purchased did not match up with any vehicles owned by the NLESD.

“In a number of cases, the invoice identified a make and model that marched the personal vehicle of the buyer,” reads the report.

“In some cases, a facilities employee or Department of Education and Early Childhood Development employee received the tires.”

Another example saw the district hire a moving company to move 1,000 pieces of donated furniture from one place to another at a total cost of $17,798. Another company was hired to supervise the move at a cost of $6,153.

“NLESD was unable to provide documentation to support the nature and extent of the 99 hours charged by the ‘supervisor’ for the movement of the donated furniture,” reads the report.
In another instance, a buyer for the NLESD arranged for free snowclearing for some facilities branch employees at their own homes from a supplier to the NLESD.

The school district also paid a total of $5,763 for lawn mowing between Oct. 16, 2013 and Dec. 16, 2013.

“There was no documented rationale for the lawn mowing purchases during this time of year or such services in general, as NLESD already owned numerous mowers and tractors for lawn mowing at schools,” reads the report.

There was a $735 two-week rental of a single wheelbarrow. Typically, wheelbarrows cost between $100 and $200 to buy.

Mullaley estimates $250,000 of assets purchased are missing from the school district, though it’s hard to say for sure how much the public purse felt the pinch of allegedly fraudulent activity by former employees.

“This is not a review of the whole organization … it’s very specific to facilities,” said Mullaley.

“What’s not there, what we cannot really determine, is what is the loss here to the taxpayer, if you’re not operating in an open and fair, transparent process? What is the loss to the taxpayer? We don’t know that.”

The department specifically was responsible for an average annual budget of more than $6 million.

Pointing to the fingers on his right hand, NLESD CEO Tony Stack would only say a handful of people have been terminated as a result of the investigations to date.

He says the school district accepts all the recommendations found in the report.

“We take great pride in our district. It’s very disturbing that the actions of a few could ultimately reflect on the organization as a whole,” said Stack.

Derek Newhook, a former operations manager with the NLESD, has previously been found guilty on two counts of fraud and one of breach of trust as a result of the investigations. He was handed a suspended sentence. He paid $3,839 in restitution and will serve one year of probation.

Stack, along with NLESD Board of Trustees chairman Goronwy Price, said part of the pressures to ensure schools open on time helped contribute to an environment lacking oversight of financial practices.

“There’s an operational imperative. You’re trying to protect instructional time, avoid the loss of school time. You want schools to open on time,” said Stack.

“You have to be cognizant of not only doing the right thing, but doing the thing right. In some cases, that might mean delays, and we’re not at the normal level of where we reach a no-failure clause. We have to accept in some cases we might fail to open a school on time. But we have to follow proper procedures.”

The NLESD was formed after the amalgamation of four school districts — eastern, central, western and Labrador — in 2013.

Price and Stack also pointed to the amalgamation as a factor in letting potentially fraudulent practices slip by.

Another practice common among the employees at the facilities branch was invoice splitting — essentially, issuing numerous invoices for a single contract in order to keep the total value of the invoices below levels set under public procurement policy.

In essence, a $10,000 contract would have to follow public procurement procedures. But 20 contracts at $500 apiece would avoid those requirements.

Stack says the school district has always had a policy against invoice splitting, and the district will work to ensure those rules are followed.

“We’ve achieved, I believe, improved detection. But we have a way to go to get to a system that’s totally preventative, to be frank,” said Stack.